2005 (11) TMI 169 - AT - Income Tax

Disallowance u/s 37 - Payment made to the Ministry of Forest and Environment - HELD THAT - Relying on the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. v. CIT 1980 (4) TMI 1 - SUPREME COURT held the same as compensatory in character, and thus, allowable as a business expenditure u/s 37. The assessee happens to be one such unit. Thus, we hold the impugned payment by assessee to the Government of Gujarat as compensatory in nature, and thus allowable in full. The order of the learned CIT(A) is thus upheld. Payment(s) made to Ahmedabad Municipal Corporation ( AMC )/Gujarat Industrial Development Corporation ( GIDC ) and to M/s. Odhav Enviro Projects Limited (OEPL), towards setting-up of a common Effluent Treatment Plant (ETP) - Claimed as Revenue or Capital Expenditure - HELD THAT - Once the matter becomes subjudice, it is the writ of the court that shall hold the field, so that even as the assessee's primary obligation to treat its discharge may have been the factor weighing on the court's mind, the very fact that it directed the defaulting unit(s) to contribute also towards the pipeline, only goes to show that it looked at the larger picture, and did not adjudicate in the matter on the basis of that primary obligation alone. And the considerations that would have weighed on the said units, in accepting the court's directions, could only be that of business. As such, the contribution even though comprising of two separate amounts for different purposes, has to be viewed as a composite sum, serving the same end, and forming part of the same common scheme formulated by the court, so that one cannot be divorced from, or looked at independent of, the other, as, for want of either, the said scheme becomes inoperational. We hold the entire contribution by the assessee for the setting up of the common ETP facility and for the laying of the pipeline network for conveyance of the discharge, in the facts and circumstances of the case, as a revenue expenditure. We order accordingly, upholding the order of the learned CIT(A). In the result, the appeal is partly allowed.

Issues Involved:
1. Exclusion of Central Excise duty and Sales-tax from turnover for deduction under section 80HHC.
2. Deletion of disallowance of excess processing charge under section 40A(2)(b).
3. Deletion of disallowance of expenses for payment made to the Ministry of Forest and Environment, Government of Gujarat.
4. Deletion of disallowance of effluent treatment expenses.
5. Allocation of administrative, selling, and distribution expenses for deduction under section 80-IA.
6. Allowance of 100% depreciation on a boiler.

Detailed Analysis:

1. Exclusion of Central Excise Duty and Sales-tax from Turnover for Deduction under Section 80HHC:
The CIT(A) directed the exclusion of Central Excise duty and Sales-tax collected from turnover for the claim of deduction under section 80HHC. This decision relied on precedents from ITAT, Chandigarh, and Mumbai Benches. The revenue's claim was dismissed as the issue was already settled by the Special Bench of the Tribunal in IFB Agro Industries Ltd. v. Dy. CIT and supported by High Court decisions in CIT v. Sudarshan Chemical Industries Ltd. and CIT v. Chloride India Ltd. Consequently, the CIT(A)'s order was upheld.

2. Deletion of Disallowance of Excess Processing Charge under Section 40A(2)(b):
The revenue contended that this issue had been previously appealed in the assessee's case for the assessment year 1995-96 and was pending decision. The ITAT had remitted the matter back to the Assessing Officer to decide based on the final outcome for the assessment year 1994-95. Following this precedent, the current issue was also remitted back to the Assessing Officer for a decision in accordance with the 1994-95 outcome.

3. Deletion of Disallowance of Expenses for Payment Made to the Ministry of Forest and Environment, Government of Gujarat:
The CIT(A) had allowed the deduction of Rs. 15,68,777 paid to the Ministry of Forest and Environment, Government of Gujarat, for socio-economic upliftment as directed by the Gujarat High Court. This decision was based on the ITAT (Ahmedabad Bench "A") ruling in a similar case (Mahalakshmi Fabric Mills Ltd.), which treated such payments as compensatory and allowable under section 37 of the Income-tax Act. The ITAT upheld the CIT(A)'s order, considering the payment compensatory and allowable as business expenditure.

4. Deletion of Disallowance of Effluent Treatment Expenses:
The CIT(A) allowed the deduction of Rs. 4,20,000 paid towards the setting-up of a common Effluent Treatment Plant (ETP) and conveyance of effluent, which the Assessing Officer had disallowed as capital expenditure. The ITAT examined the nature of the payments and found that they were made in compliance with the Gujarat High Court's directions and were necessary for the assessee's business operations. The ITAT concluded that the expenditure was revenue in nature, as it facilitated the smooth conduct of business without conferring any proprietary rights or capital asset to the assessee. The CIT(A)'s order allowing the deduction was upheld.

5. Allocation of Administrative, Selling, and Distribution Expenses for Deduction under Section 80-IA:
This ground was not pressed by the revenue and was thus dismissed.

6. Allowance of 100% Depreciation on a Boiler:
This ground did not arise out of the CIT(A)'s order and was dismissed in limine as incompetent.

Other Grounds:
Grounds of appeal Nos. 7 and 8, being general in nature, did not warrant specific adjudication.

Conclusion:
The appeal was partly allowed, with specific issues remitted back to the Assessing Officer for further consideration, while others were upheld or dismissed as per the detailed analysis above.

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